Bankruptcy In The USSA: Detroit Bondholders About To Be GM'ed In Favor Of Pensioners

First, the Obama administration showed during the course of the GM and Chrysler bankruptcy proceedings, that when it comes to Most Preferred Voter classes, some unsecured creditors - namely labor unions, and the millions of votes they bring - are more equal than other unsecured creditors - namely bondholders, and the zero votes they bring. Five years later we are about to get a stark reminder that under the superpriority rule of a community organizer for whom "fairness" trumps contract law any day, it is now Detroit's turn to make a mockery of the recovery waterfall. As it turns out, bankrupt Detroit is proposing to favor pension funds at roughly double the rate of bondholders to resolve an estimated $18 billion in long-term obligations, according to a draft of a debt-cutting plan reviewed by The Wall Street Journal.

The breakdown to unsecured stakeholders would be as follows: 40% recovery for pension funds, 20% for unsecured bondholders - all this to the same pari class of unsecured creditors. Because just like in Europe when cashing out on CDS in insolvent nations is prohibited as it would suggest that the entire Eurozone experiment is one epic farce, regardless of how much "political capital" Goldman Sachs has invested in it, so in the US municipal creditors are realizing that in the worst case scenario, they will be layered first and foremost by all those whose votes are critical in keeping this crony administration in power.

According to the WSJ the plan calls for recovery to be divided among the unsecureds amounting to $4.2 billion, more than the originally planned $2 billion to settle claims which included about $11 billion in unsecured debt, including $6 billion in health and other benefits for retirees; $3.5 billion for retiree pensions; and about $530 million in general-obligation bonds.

There is a possibility that final "math" in the Plan of Reorg is changed before the final draft.

It was unclear from the plan reviewed by the Journal whether the city is using all of the same estimates for the money owed to unsecured creditors in its draft plan. A person familiar with the draft plan said the recovery rate for the pension funds could end lower than the balance sheet shows.

Details of the plan sent to creditors on Wednesday have been kept under wraps as the city and its debtholders continue to talk in closed-door mediation. The city sent its working draft to creditors in the hopes that the plan with a richer payout might spur some of them to settle with the city individually or, in the least, offer their own suggestions toward modifying the overall proposal, according to another person familiar with the matter.

The formal plan is expected to be filed in federal court in Detroit within two weeks, officials said. Creditors will vote on the plan, but the final decision rests with the court.

Still, the probability is that Kevyn Orr has finally gotten cold feet on playing hard ball with the unions. "The proposed plan provides the road map for all parties to resolve all outstanding issues and facilitate the city's efforts to achieve long-term financial health," Detroit Emergency Manager Kevyn Orr said in a statement Wednesday. Mr. Orr's spokesman declined Thursday to comment on the plan's details. Several creditors, who were opposed to the city's early plans to offer creditors, including bondholders and pension funds, less than 20 cents on the dollars owed to them, also declined to comment."

One can only imagine the amount of "Steve Rattnering" that must have gone on behind the scenes, and how much more is still set to happen, for such a skewed plan to pass the bankruptcy judge over creditor objections. Which it will once the president makes a phone call.

Then again, with contract law abrogated as was made very clear with this administration's first steps into the "Fairness Doctrine" back in 2009 and the bankruptcy of GM and Chrysler, nothing can, or should, surprise one any more.

The response time for a 911 call in Detroit is 58 minutes, in many cases longer. They can't afford any more cops. But they can afford to pay retired cops their pensions. Once in awhile with crystal clarity we can see where the priorities are.

I know several firemen and policemen, "risking their lives" is a bit dramatic. If it's so fucking bad, they can go serve in Afghanistan.

I agree, holding any Detroit debt is insane, but when the municipailites and utility companies leave, then they might start risking their lives considerably more often. There are always exceptions, but where will the taxes and money come from to pay for all the essential services which are about to get considerably more expensive? The youth of detroit sure as hell are not working. Perhaps they will wake the fuck up and execute some fucking bankers. I won't hold my breath.

by the way, many of those "bondholders" are in fact pension funds. So good luck with that circular reasoning.

Yup Laws. Pension holders and bond holders are not exclusive in this case. Everyone yelling "fuck the bond holders" might as well be yelling "fuck the pensioners".

I have no idea how much money has been set aside for the payment to utility companies and municipality services. The fed gov't spends a lot of money on states to make sure people's lights and heat are not shut off due to lack of payment. Judging by how the city has been run over the years, I don't have a lot of confidence in their possible contingency planning.

So here is their police chief urging citizens to arm themselves, which is highly unusual in the current anti-gun environment. Itsn't that a tip off that something is horribly wrong or maybe horribly right for people who can't expect that a 911 call be answered in under an hour?

People sometimes talk about Detroit as if its devoid of a population. While the unions and muni bond holders [often the same person] pick over the leavings, no one is talking about the people who still actually live there. They are planting gardens in once populated areas so they can grown their own food and put some of the abandoned land to good use. Citizens are picking up trash by themselves to keep their streets as clean as possible. Some of them are locking and shuttering abandoned homes themselves to keep kids out of them.

Most cops I know of, even out here in CA are in favor of the populace arming themselves.It's the Progressive Politicians that ain't

And on to New Yawk...

From the New Yawk Post (the t is silent)
"A total of 334 people were murdered in New York City last year, only 29 of them by strangers. That's down from more than 2,245 murders in 1990, and the lowest number of murders in the city on record"
Good luck Mr Mayor DeBlowzioI'll take the over.

The problem I have with that stat Knicks is that a murder is only classified as such when the person actually dies. Trauma care today in New York (I am assuming) is much better than in the 1990s due to advances in technology. What would be interesting to see for me is if the rate of shooting and stabbings have decreased as well to get a more accurate assessment if crime has decreased.

What about all the asshats who made unfunded promises over the years to these pensioners? Absolutely no legal reprecussions. Ok fine, that how the rules were written at the time, but what are we doing to change it going forward? Nothing that I've seen or heard. This is how you buy votes with the money of the unborn, and it shouldn't be allowed.
People agreed to the terms of employment with the pensions as part of that, if they were not part of the equation or risks were properly disclosed then it might have changed people's minds. Regardless of if the pensions as offered were 'reasonable' or 'fair' (I do not know the pension terms nor attempt to define what amount would be fair) the fact is they were part of the terms of compensation for the jobs. Why do we let officials get away with making promises they will never be held responsible for?
I'm curious what the breakdown in current income levels is for these pensioners as well. While the are probably a few who are just fine, I'm guessing the majority of these people were counting on this money that was contractually promised to them for their employment. If the funds are going to be unevenly distributed anyway then at least means-test the receivers and assign payments according to need. Rich bond holders speculating on Detroit debt will survive a lot better than a retired firefighter with no others income. Case by case basis if pari distribution is already thrown to the wind.

Right, so what are we, as a society, going to do to rework the laws to prevent this going forward? Assigning blame in hindsight fixes nothing.
Second, either we have a representative democratic republic and accept that, or admit that the structure needs to change. The fuck good does it do to blame one party or another when the outcome isn't in your favor? I have no love for either established party in this country, they have demonstrated time and again they willingly take turns robbing the republic and use emotional issues as a wedge to garner votes while either agreeing on or ignoring mo pertinent issues of substance.
Rather than whine about red this or blue that the laws need to be rewritten to remove vote-buying and empty promises from being a tool of any party. Campaign promises should be enforceable and if they are abandoned then automatic removal from office as that politician was voted in based on those statements. Further, any unfunded liability should be forbidden, period. If something cannot be pre funded then the most mathematically conservative models should be used to account for investment growth with multiple mandatory audits and adjustments at regular intervals. None of this spend ten trillion today but cutting 100 million over ten years. No more choosing top theoretical rate of return to justify pension underfunding, etc. it's obvious these accounting gimmics have been and are used to make hyper optimistic promises which could only be reached in the best case, meanwhile the politicians brokering those deals know they will be long out of office when it defaults, or can't be held liable regardless. Is fucking easy to spend other people's money when you can't be held accountable.

The structure which needs changed is the elimination of unions in any government position.

It is corruption waiting to be corrupted (that is corruption squared).

These Ponzi scheme promises can go on for decades, as in Detroit, NY, California (pick a major city) when the politicians and the unions are complicit in the theft of taxes - i.e. citizens hard earned dollars.

I know, I know; 'what about the children!!'. They are fucked by decades of political and union theft.

Unions need to be voluntary associations not mandatory ones for starters. Workers like anyone else should be able to voluntarily if enough choose to do so group together to negotiate better deals. Problem is the unions are mandatory competition crushing corrupt backdoored piggy banks that workers have no choice but to join because they have monopolies on the labor pool for certain jobs and stiffle free market labor competition for better workers for starters. If one side can associate to crush wages the other side should be able to associate to counter it. Bigger problem is when both sides are a bunch of corrupt shitbag each parry corrupts the whole overall system with each action until it collapses.

Corrupted individuals are the root of all these problems on all sides the coin here. Once enough of them overrun insitutions like cockroaches they weaken the institutions to the point non-corrupted individuals pretty much don't have a chance in hell of righting the ship if they don't become corrupted by the whole mess in the first place before they are in position to do anything.

And this is why everything must fail and implode because we've passed that point of no return with all these institutions being corrupted beyond repair because there too many corrupted individuals to deal with first before any long term meaningfull solutions can be implemented.

The key here is 'empty promises'. Going forward, we're going to see a lot more politicians get turfed out when they fail to fund pensions. Promising a pension hike will no longer be a reason to feel assured of civil servant support - in fact, such empty promises will become a liability if not promptly followed by concrete spends to cement the promise.

What about all the taxpaying citizens and businesses that said they had lived all their lives in Detroit, plowed back into local businesses and could n't survive if the cop/fireman/teach unions kept pushing up taxes for their salaries?
The last thirty years unions have been little more than asset strippers. Jackels on the prostrate public body.

Counterpoint - Detroit was paying out EXTRA amounts to pensioners for years - a 13th monthly payment - when they felt they had 'extra' money. Almost $2 BILLION extra was paid out to pensioners over 20 odd years

I call BS. That money, coming in when investments were performing well SHOULD have been kept in the system to earn more. Those running things in Detroit clearly had NO IDEA of how things were supposed to be run. 'Extra' payments? WTF?

Workers deserve their pensions - reasonable pensions (not the maxed out make as much as you can in your final year to double your final year's earnings and double your resulting pension). Too many corporate pension funds have been looted dumping those obligations onto taxpayers. And - in marked contrast - too many government pensions are absurdly generous with politicians earning pensions for minimal years of service on various governmental boards and such. 'Average' workers get to pad theri pensions with final year boosts in earnings and other gimmicks.

The problem is GREED - all around. Detroit pensioners deserve a pension but they NEVER should have gotten EXTRA payments much less grown to view those extra payments as a 'right'

Those extra paymeents should be clawed back as much as the bonuses paid to bankers bailed out wioth TARP funds clawed back

Thank you. I had that picture put on a good quality, long sleeve t-shirt and gave to my dad. He is tough to buy for at the holidays, so usually I don't because he doesn't want anything. He couldn't wait to wear it to the gym, so that is a win LOL!

To the point, neither of us could figure out who it was. My best guess was that it was a double image of Marx to go with the Marx Brother's theme, but I was pretty sure I was wrong!

The historical default rate of general obligation bonds (in particular) is exceptionally low. Pointing to examples like Detoilet as "evidence" that munis are a bad investment is sophomoric. Not every municipality in the US is comparable to Detoilet. As a matter of fact, I once lived in Detoilet (employer transferred me there). While I wouldn't touch their muni bonds with a ten foot pole, I still own some munis issued in other states (Texas in particular). Never lost a dollar of principal to default in ~30 years of owning various munis.

In fact, you really have to wonder who was buying Detroit munis, which has obviously been circling the drain for all of my adult life. Perhaps the bondholders are Dem insiders who bought them cheap before 2010, expecting Obama/Reid/Pelosi to arrange a federal bailout? In that case, I have less sympathy.

generational conflict is not going to solve this problem. You should keep you eye on the true adversary and when the time comes put your crosshairs on them. The ultra elite and their minions are the target buddy!

She probably is, but she will never get credit, nor will anyone mainstream as her questions like how she knew this would happen when no one else saw it coming. She will be ignored. Peter schiff, Ron Paul, Michael burry etc.

Other than AIG bonus "contracts", when was the last time rule of law was followed? The Tyler's have highlighted 15 times in the last 3 years when the world economy should have crumbled. The rules were changes, laws were broken and the ponzi rolls on. Fuck you to any Detroit bond holder. Should've sold after RoboCop came out 30 years ago!

one has to be aware of the environment (lawless) and invest accordingly - I'm not too fond of those who participate in the paper casinos since they are complicit in perpetuating the criminal/lawless environment, knowingly or not - but too bad - I can't wait for the day all the world's paper becomes worthless, rendering the criminals bankrupt (of course except for the ones who secretly stashed away hard assets)

If the Feds are to buy munis they will have to restate the budget. Currently they are trying to cut back.

My guess is that they will if they get the chance. In this derivative world however things might go bad fast. There might not even be time to screw things up with standard, run of the mill, everyday, Zimbabwe led the way, Reichsmark hooray, blue dollar payday...hyperinflation.

I beg to differ Laws. There are plenty of rubes out there who will lend money again on the belief that Detroit can now get their act together. Look at how easy is was to get people to throw their funny money back in the casino. Market forces are completely broken.

Nah, they'll just get another tax payer bailout, a la AIG. Leverage to the hilt, and wait for the public to come to the rescue. In the meantime, it parties in the mediteranean, fast cars, and other luxuries.

+100. don't lend to anyone. Their business model is to borrow, borrow borrow, file for bankruptcy. Whether it is to buy re-election or to expand business, these morally corrupt A-holes don't get my money. Oh, and FU detroit. you get what you voted for.

Yep. These things always go the exact opposite of the way they should. The lawyers, corporations, and various scumbags that thought they were going to make a quick buck split the pot, while the rubes that sit in cubes for 20, 30, 40 years get fucked.

But don't kid yourself. The lawyers & various scumbags will get it all again this time. Wait & see.

Believe me, the brain dead morons who would invest in that in the first place will never, in a million years, add those things together. Plus, even if they did, the MyRA is backed by yellens printer, Detroit isn't. Obviously we can extrapolate that the printer means everything will be fine.

The true costs of this type of crap will not be seen for 10+ years. Bondholders will demand much higher coupons if they feel that they willl get screwed in the BK process over and over. Cities will regret this - they cheer now but it will only make it worse. One city does not make a trend but my guess is the next few years we will see it emerge - blatant disregard for laws.

Instead of settling for 5% coupon, holders are likely to estimate when and if you might get into financial trouble and then demand 8 or 9% to cover the expected hosing during BK time. Cities of course cannot handle this level of coupon so they are likely to be in yet further trouble as they are locked out of borrowing their way to prosperity.

Remember the Ill, Detroit & Fed govt all wanted to throw its union pensioners under the bus to pay off questionable swap holders with unsecured claims with a fresh new loan ahead of all other creditors (made after all creditors) including retired union members.

Obama's concern for elderly White American Union retiree members is measured in micro-nigga-giveashitz, they voted him in, their stupidity isn't his problem, it's his windfall.

For once I'd like to see some of the institutional debt holders stand up and tell these asshats that since we're not going to follow the rule of law we will consider dumping all debt of troubled governmental and others corporates where the government may want to dictate a precedence other than that established by law!!